changes are urged in record tracking economic group uses

1st exdamination in 6 years

County officials feel vindicated, but they have more questions

The first audit of the Anne Arundel County Economic Development Corp., which has closely guarded its books since it was formed six years ago, found "significant deficiencies" in the agency's financial dealings.

The review, released yesterday, gave the first public glimpse of how the corporation has spent money during the past year.

The accounting showed the 15-person office spent $55,000 on travel, and nearly $600,000 on promoting the county at events such as the Preakness and a round-the-world yacht race.

Overall, the financial review by the county's auditor found all of the corporation's money accounted for, but it raised numerous questions about how money was handled and how transactions were documented.

Anne Arundel's development corporation runs like a private company, but its director is a county employee, and about $6 million in taxpayer money has been put into the corporation since it was privatized six years ago.

The agency tries to court out-of-town businesses, assist entrepreneurs and help bring jobs to the region.

In recent months, demands for more public scrutiny of the development corporation have escalated. County Executive Janet S. Owens and County Council Chairman Daniel E. Klosterman Jr. demanded the audit as a condition for continued financial support. They said calls for an audit underscored their discomfort with the agency's repeated refusals to open its books.

On July 15, dispute over the disclosures played a part in the abrupt resignation of the corporation's executive director, Richard J. Morgan. Two weeks later, Owens shuffled the nine-member board of directors, replacing five members with people she described as "trusted friends."

And last week, the corporation's longtime chairman, Jay Winer, was sued on fraud allegations.

The suit claims that Winer and a partner stole a business idea from a couple who had approached the agency seeking a start-up loan. He and his partner have repeatedly denied the allegation.

With all that in the background, Owens said the audit's findings are something of a relief.

"My major concern all along has been that all the money was accounted for, and I feel better now knowing that it has been," Owens said.

The corporation's interim director, William A. Badger Jr., also said the overall findings of the audit are positive.

"The two big questions were: Could we account for the funds? And did we spend them appropriately?" Badger said. "On both those questions, the answer was `yes.' "

The 11-page summary that accompanied the financial review outlined what the report characterized as "significant deficiencies."

Bookkeeping flaws

Some were bookkeeping flaws, such as assets reported twice. Others were procedural, such as agency employees failing to have someone co-sign checks that were for more than $500. It criticized the corporation for not officially adopting an operating budget and for failing to record detailed minutes of meetings.

And it recommended the agency hire a more qualified accountant, which Badger said he would consider.

Badger said the report made good suggestions for dealing with what he called the corporation's "growing pains."

Klosterman said the problems needed to be aired.

"Collectively, it paints a picture of something that shouldn't have gone on this long," said Klosterman.

"It shows requiring them to have an audit was correct, and it vindicates the county executive in appointing five new people."

The council chairman also said the audit left unanswered several questions about the agency. For example, he said he doesn't know whether the travel expenditures were appropriate or excessive.

Asked for a breakdown of the $55,000 budget, Badger said it included transportation costs, mileage, lodging, meals and registration at events for all employees.

One of the more expensive trips, he said, was a two-day trip former County Executive John G. Gary and Morgan took to Arizona. The cost: $8,000.

In an interview yesterday, Gary said the expense was for a Forbes CEO Forum attended by the most powerful business players in the country.

He said he and Morgan wanted to persuade organizers to hold their forum in Annapolis, as they had in 1995.

They were the only economic development officials at the conference, known as an upscale get-together for millionaires at which attendees are given shipping boxes to send home the leather briefcases, Bulova clocks and jewelry they are given.

Though Gary is not sure whether the county ended up making the list of convention sites, he said the trip allowed them to visit an Arizona mall owned by the same developers building Arundel Mills near the airport.

"The [attendees] are all the major CEOs in business," Gary said. "And because of that, the function was a little more expensive. They only invited a couple hundred people."

Business loans

The audit touched briefly on the agency's business loan program. It noted that one of the loans was never rated for risk but was instead backed by a promise that the county would cover its losses if the business failed.

The audit did not name the company.

Several other loan files did not include up-to-date reports on the financial status of loan recipients, the audit reported.

Owens said she intends to inquire about those concerns and to raise several other questions.

"I want much greater scrutiny of all loans," she said. "That is a subject I intend to raise with the board."